ECB to cut interest rates, keep door open to further easing

By Balazs Koranyi and Francesco Canepa FRANKFURT (Reuters) - The European Central Bank is all but certain to cut interest rates on Thursday and is likely to keep open the door to further policy easing as concerns over lacklustre economic growth supersede worries about persistent inflation. The ECB lowered borrowing costs four times last year and up to four moves are anticipated in 2025, driven by arguments that the biggest inflation surge in generations is nearly defeated while the economy demands relief. With the euro zone suffering through an industrial recession and weak consumption, the case for a cut is so clear that none of the ECB's 26 policymakers have publicly pushed back.

That could mean a unanimous vote for a 25 basis point cut to take the deposit rate to 2.75%, its lowest since early 2023, even after the U.S.



Federal Reserve, the world's largest central bank, paused its own easing cycle on Wednesday. While ECB President Christine Lagarde is unlikely to commit explicitly to more cuts, she is likely to argue that the direction of policy remains clear and that the risk of a trade war with the United States could sap weak growth even more. "Inflation is approaching the target in a more sustainable manner, the economic outlook remains challenging, while rates clearly remain in restrictive territory," Nordea economist Jan von Gerich said.

"The process of gradual normalisation thus remains incomplete." Inflation, which rose to 2.4% in December, could still take a few months to ease back to the ECB's 2% goal but there is little to challenge the narrative that all is on track.

Wage growth is easing, the labour market is softening, oil prices have come off early-year highs and the dollar's relentless firming seems to have stopped for now. A few voices are still likely to argue that pressure on services costs remains too high for comfort but that is more an argument for gradualism than for a pause. COMPLICATIONS But with a debate already starting on where the ECB's rate cuts should end, consensus may be more difficult to maintain with each future cut.

New U.S. President Donald Trump's policies could also make the environment more volatile.

His threatened trade tariffs would weigh on growth but any retaliatory measures by the European Union would risk pushing up inflation. Trump last week demanded that the Fed cut interest rates but the bank resisted on Wednesday, arguing that inflation was still elevated and it was not in a hurry to cut borrowing costs, a signal taken by markets to suggest that a longer pause may be ahead..